Birmingham City Council leader Mike Whitby has attempted to shrug off a backbench Tory revolt which is threatening to destabilise his Conservative-Liberal Democrat coalition.

A rowdy Conservative group meeting, where councillors openly opposed plans to establish a municipal bank and questioned the legality of a move to help Washwood Heath van maker LDV, was dismissed by Coun Whitby as “all part of democracy”.

The meeting followed a decision by 10 Tory councillors – a quarter of the group – to send a letter to the Birmingham Post declaring the municipal bank to be a waste of taxpayers’ money.

The project, which could cost £200 million to set up, is backed by Coun Whitby who believes a bank could help families and firms hit by the recession.

During angry scenes, backbenchers rounded on cabinet housing member John Lines, who has ordered officials to investigate whether firms bidding for a lucrative council house repairs contract could be forced to buy vans from LDV.

The suggestion was described as “illegal, socialist and protectionist” by several rebels, who warned that the idea would rebound on Birmingham.

The Post has learned that several backbenchers are considering a challenge to deputy Tory leader Len Gregory at the group’s annual meeting next month.

Only three group positions are elected – the leader, deputy leader and secretary – and all Tory cabinet posts are appointed by Coun Whitby.

One senior backbencher said: “We know there is no point in trying to oust Mike.

“But if things don’t improve there could be an attempt to challenge Len Gregory. It’s not something I would rule out, it is quite possible.”

Another Conservative councillor said: “There are attempts to bully and threaten anyone who disagrees with the leadership. But threats will backfire.”

Frustration has been growing among about a third of the 49-strong Tory group, who claim they are not consulted about policy by the council leadership.

The first any of them knew about the bank was when the proposal was announced by Coun Whitby to the press at the end of last year.

Some younger Tory councillors feel they are little more than backbench “voting fodder” and have little chance of getting into the cabinet or being given a scrutiny committee chairmanship.

And in an embarrassing challenge to Coun Whitby, the backbench rebels are demanding guarantees in return for future loyalty.

At the top of their list is the formation of a formal committee, which would elect its own officers and exist to act as a link between the backbenches and the leadership.

The idea is to replicate the Conservatives’ 1922 Committee – known as the men in grey suits, which can often make or break party leaders.

Coun Whitby (Con Harborne) insisted claims of a serious challenge to his leadership were overstated.

He added: “In any political structure there are people that are dissenting.

“For those people that want to rebel, it is all part of democracy. The Conservative Party deserves to have a philisophical debate, and I welcome that.”